France and Germany divided on jobs

Unexpectedly sharp disagreements on jobs and public spending yesterday prevented France and Germany from reaching a common position on the single currency before the EU summit in Amsterdam on Monday and Tuesday.

Negotiations are to continue throughout the weekend and both the new French Prime minister, Lionel Jospin, and the German Chancellor, Helmut Kohl, predicted yesterday that an agreement would be found to prevent an Emu crisis in Amsterdam.

Mr Jospin surprised Chancellor Kohl at a Franco-German summit here by producing new proposals for EU action to boost growth and create jobs. The new French premier wants, among other things, to revive plans for a large programme of EU transport projects, first floated in 1994 but abandoned for lack of funds. Chancellor Kohl apparently retorted that he could not agree to any increase in EU spending, while German, and other domestic budgets, were being squeezed to meet the guidelines for membership of Emu.

The new French government warned earlier this week that it would refuse to ratify a pact on budgetary discipline within the single currency, due to be signed in Amsterdam, unless the EU also strengthens its policies for growth and common economic decision-making. It had seemed that a compromise, based on a general declaration of principle, would be worked out and, possibly, approved in advance by Paris and Bonn in Poitiers yesterday. But the new French proposals, delivered to Bonn and other EU capitals on Thursday, have seriously complicated the negotiations.

The French suggestions fall short of specific proposals for extra EU spending. Mr Jospin described them as "ideas" not "demands or conditions". He said they were based on decisions already taken by the EU heads of government at their Essen summit in 1994 (presumed to be a reference to vague plans, since shelved, for investment in transport projects).

Chancellor Kohl told a press conference: "I am convinced that we will arrive at an agreement, as we always have in the past," he said. But, earlier in a 50-minute tete-a-tete with Mr Jospin, Mr Kohl apparently said he would not accept any form of words which implied a move towards a more reflationary, or spending-led economic policy.

Both sides were anxious last night to play down suggestions of a breakdown in negotiations or even a sharp disagreement. They said it was never intended that the Franco-German summit should solve the Emu dispute on its own. President Chirac, who was reduced virtually to a summit master of ceremonies by Mr Jospin's victory in the parliamentary elections, said: "There exists a willingness, a full agreement to reach, in the coming hours, a settlement."

It is extremely unusual, however, for the two countries at the heart of the European Union to enter a critical summit without a common approach to the principal subjects on the agenda. French and German officials are to continue working over the weekend. There will also be renewed mediation efforts by the European Commission and the Dutch government, which holds the EU council presidency. An emergency meeting of EU finance ministers may be held in Amsterdam on the eve of the summit tomorrow night.

Although Mr Jospin's brinksmanship caught many people by surprise, it seems unlikely that the new French government will risk undermining, or seriously damaging, the single currency project within two weeks of taking office. French and german officials believe that Mr Jospin will be prepared to accept a more or less vague compromise declaration in Amsterdam next week.

t Wiesbaden (Reuters) - Bundesbank council member Ernst Welteke told a conference on European economic and monetary union yesterday that the recent dispute over revaluing Germany's official reserves could have hurt the Bundesbank's long-term standing.